Latest / How Canadian Markets Work / Episode 19: Insider Trading and Disclosure

Transcript

Episode 19: Insider Trading and Disclosure · How Canadian Markets Work

• 0:00
  I want you to just sit back for a second. Well,
• 0:03
  imagine a very specific scenario. Okay, I'm picturing
• 0:05
  it. You are sitting at a beautifully set table.
• 0:08
  The lights are low. The hum of a late night dinner
• 0:11
  party is just buzzing all around you. It's very
• 0:14
  cozy. It is. The wine is flowing. People are
• 0:16
  laughing. And the person sitting to your right,
• 0:20
  a stranger you were just introduced to maybe
• 0:22
  an hour ago, leans in. Right. And he mentions,
• 0:25
  just in passing, almost casually over dessert,
• 0:27
  that his company is in the final stages of a
• 0:30
  massive unannounced acquisition. Oh, boy. Yeah.
• 0:34
  So the next morning, as you're sitting on your
• 0:36
  couch drinking your coffee, you open your brokerage
• 0:38
  up on your phone, and you buy a few hundred shares
• 0:40
  of his company. Now, you don't work there. You
• 0:43
  don't own any previous stake in the business.
• 0:45
  You are entirely unaffiliated. So are you safe
• 0:49
  from insider trading laws? I mean, it paints
• 0:51
  such a comfortable, familiar picture, right?
• 0:54
  But the reality of that situation is that the
• 0:57
  person tapping by on their phone over their morning
• 0:59
  coffee might be walking into some very, very
• 1:02
  serious trouble. And I think we really need to
• 1:05
  just sit with that for a moment. Yeah. Because
• 1:07
  there is this pervasive assumption that to commit
• 1:11
  insider trading, you have to actually be an insider.
• 1:14
  Exactly, like some movie villain. Right. We picture
• 1:17
  a powerful executive in a mahogany boardroom
• 1:19
  passing manila folders in a dark parking garage.
• 1:24
  But in today's deep dive, we are making a mission
• 1:27
  out of understanding why the offensive insider
• 1:30
  trading actually follows the information itself.
• 1:33
  The information, yeah. Rather than the job title
• 1:35
  of the person holding it. We're going to explore
• 1:38
  how the act of tipping works, how the system
• 1:40
  of... Continuous and selective disclosure is
• 1:44
  designed to prevent rigged markets, and we'll
• 1:46
  pull back the curtain on exactly how market surveillance
• 1:49
  flags suspicious trades. Trades that the average
• 1:51
  person assumes are completely invisible, honestly.
• 1:55
  It really is a fascinating mechanism to explore,
• 1:58
  especially when we slow down and look at the
• 2:00
  foundation of it all. even begin to look at how
• 2:04
  people break these rules or, you know, why a
• 2:07
  passing comment at a dinner party is so dangerous.
• 2:10
  We first have to understand the philosophy of
• 2:12
  why the rules exist in the first place. Right.
• 2:14
  The why. Yeah. We have to define what actually
• 2:17
  makes a piece of information illegal to trade
• 2:19
  on. Well, the natural assumption, at least for
• 2:21
  me, is always that this is just about fairness.
• 2:24
  Sure. like a sort of moral leveling of the playing
• 2:27
  field, ensuring that the everyday retail investor
• 2:30
  doesn't get cheated by the Wall Street elite.
• 2:33
  And that sense of fairness is definitely a huge
• 2:35
  part of the cultural conversation. I mean, we
• 2:38
  talk about it all the time. But if we connect
• 2:40
  this to the bigger picture, to the architecture
• 2:42
  of the financial system, the rules exist for
• 2:46
  basic market survival. Survival. It all comes
• 2:49
  back to the fundamental purpose of markets, which
• 2:50
  is to raise capital. Think of it like sitting
• 2:54
  down at a poker table. OK. If you find out that
• 2:57
  the dealer is subtly signaling the other players,
• 3:01
  you don't just complain about the ethics of it.
• 3:02
  You stand up, you take your chips, and you leave
• 3:05
  the table. You stop playing entirely. Exactly.
• 3:08
  Well, that's the danger regulators are just terrified
• 3:10
  of. If a market is known to be rigged, if the
• 3:13
  public believes that insiders are systematically
• 3:16
  extracting wealth from uninformed participants,
• 3:19
  the uninformed participants will simply leave.
• 3:22
  They'll just take their money out. Right. They
• 3:24
  will pack up their retirement accounts and go
• 3:25
  somewhere else. And a market without trust, without
• 3:29
  everyday participants, well, it cannot raise
• 3:32
  the capital that businesses need to grow. the
• 3:35
  entire structure collapses. Wow. So policing
• 3:38
  this information isn't just some moral crusade.
• 3:41
  It is a structural load -bearing pillar for the
• 3:45
  entire economy. See, that reframes it completely
• 3:47
  for me. It's not about punishing bad people.
• 3:50
  It's about keeping the casino open, so to speak.
• 3:53
  Right, by making sure everyone trusts the dealer.
• 3:55
  So if we are protecting the integrity of the
• 3:57
  market, what is the actual threshold? Like what
• 3:59
  makes a piece of information so dangerous that
• 4:02
  it triggers these laws? The legal concept at
• 4:04
  the heart of this is called material information.
• 4:07
  And in the simplest terms, it is any information
• 4:10
  that would reasonably be expected to have a significant
• 4:13
  effect on the price of a security. So an unannounced
• 4:16
  takeover offer, like our dinner party stranger
• 4:19
  mentioned. That would be the textbook example,
• 4:21
  yes. Takeover offers... major contracts being
• 4:24
  won or lost, massive earning surprises that deviate
• 4:28
  wildly from what the public was expecting, or
• 4:30
  maybe the results of a critical make or break
• 4:34
  drug trial at a pharmaceutical company, or a
• 4:37
  significant new mineral discovery for a mining
• 4:39
  firm. Those are deeply material. And what about
• 4:42
  things that aren't material? So non -examples,
• 4:45
  the things you actually can talk about would
• 4:47
  be routine personnel changes or a small everyday
• 4:50
  vendor contract that doesn't fundamentally shift
• 4:53
  the valuation of the entire enterprise. I have
• 4:55
  to pause and push back on this a little bit though
• 4:57
  because we are judging this after the fact. When
• 5:00
  we sit here in hindsight looking at a stock chart
• 5:03
  that just spiked 20%, it is incredibly easy to
• 5:06
  say, ah yes, that contract was major. Oh, absolutely.
• 5:09
  But how does a reasonable investor or an executive
• 5:12
  know the difference between a major contract
• 5:15
  and a routine one in real time? I mean, when
• 5:17
  you are right in the messy middle of doing business,
• 5:21
  it sounds incredibly subjective. It is genuinely
• 5:24
  difficult. You're absolutely right to point out
• 5:25
  the danger of hindsight bias. It's something
• 5:28
  regulators struggle with constantly. The practical
• 5:30
  test that courts and regulators try to apply
• 5:33
  is essentially a behavioral one. They ask Would
• 5:37
  this specific piece of information change what
• 5:39
  a reasonable investor decides to do? Interesting.
• 5:42
  Yeah. If knowing this secret would make you buy,
• 5:45
  sell, or hold your shares differently than you
• 5:47
  would have yesterday, it crosses the line into
• 5:49
  material. It alters your decision making. Precisely.
• 5:52
  And the sheer subjectivity of this vast gray
• 5:55
  area where a million dollar contract might be
• 5:57
  immaterial to a giant tech company, but massively
• 6:00
  material to a small startup. Right. Totally different
• 6:02
  impact. Exactly. That is exactly why public companies
• 6:06
  employ entire teams of securities lawyers. They
• 6:10
  sit in conference rooms late at night agonizing
• 6:13
  over these exact definitions, deciding if they
• 6:16
  need to issue a press release. So it's not an
• 6:18
  exact science. It is not an amateur's game at
• 6:21
  all, and it requires a deep understanding of
• 6:23
  the company's specific context. So... Now that
• 6:26
  we have a feeling for what material information
• 6:29
  actually looks like, let's look at how it moves
• 6:31
  because this leads us right back to our dinner
• 6:34
  party and the realization that you don't need
• 6:36
  a corner office to commit a securities crime.
• 6:39
  And that is the crucial pivot in this whole deep
• 6:42
  dive. Insider trading is the act of purchasing
• 6:44
  or selling a security with the knowledge of material
• 6:47
  undisclosed information. Right. But the net of
• 6:50
  liability extends to anyone in what the law calls
• 6:53
  a special relationship with the company. A special
• 6:55
  relationship? Yes. And that definition intentionally
• 6:58
  reaches far beyond actual employees. It captures
• 7:01
  anyone who receives information from someone
• 7:03
  they knew or frankly ought to have known was
• 7:06
  in such a relationship. It almost acts like a
• 7:08
  virus. That's a good way to put it. Like the
• 7:09
  law doesn't just isolate the original host. It
• 7:12
  follows the infection. Which brings us to the
• 7:15
  second entirely separate offense. Tipping. I
• 7:19
  think the virus analogy is incredibly accurate,
• 7:21
  yeah. Tipping is defined as informing someone
• 7:23
  else of material undisclosed information outside
• 7:26
  the necessary course of business. Okay. What
• 7:29
  always surprises people here is that casual disclosure
• 7:33
  is still disclosure. You can be found guilty
• 7:36
  of tipping even if you never log into a brokerage
• 7:39
  account and never trade a single share yourself.
• 7:41
  Wow. If you hand someone the weapon, you are
• 7:44
  liable. Let's trace how this chain of liability
• 7:47
  actually looks in practice, because I think slowing
• 7:50
  down and seeing it step by step makes the abstract
• 7:52
  legal jargon feel very real. Sure. Let's follow
• 7:55
  a hypothetical trace. Imagine a mid -level finance
• 7:58
  employee at a large public company. She is quietly
• 8:01
  preparing a quarterly report late on a Friday,
• 8:04
  and she sees internal projections showing the
• 8:06
  company is about to miss its earnings targets
• 8:08
  by a disastrous catastrophic margin. Yeah, she
• 8:11
  knows the rules. She doesn't trade. But the next
• 8:14
  day, She goes to a cafe, sits down with her brother,
• 8:18
  and vents about how terrible things are looking
• 8:20
  at work. That act of venting is tipping. She
• 8:24
  infected him with the information. She did. Now
• 8:27
  her brother immediately pulls out his phone and
• 8:29
  shorts the stock, which simply means he's placing
• 8:32
  a financial bet that the stock price is going
• 8:35
  to crash. Right. He's now committing insider
• 8:37
  trading. So the employee is caught for tipping
• 8:40
  and the brother is caught for trading. Both of
• 8:43
  them are on the hook. Yeah, but the virus continues
• 8:46
  to spread the brother goes to his own workplace
• 8:48
  on Monday and Whispers to a colleague. Hey, my
• 8:52
  sister works over at this company and they're
• 8:54
  about to report terrible numbers You should bet
• 8:56
  against them. Oh man, the colleague listens and
• 8:59
  he buys put options Which is essentially a cheap
• 9:01
  high -risk contract that pays out massively if
• 9:04
  the stock tanks in the next few days I keep thinking
• 9:07
  about the sheer scale of that I mean the the
• 9:09
  colleague is now two entire degrees removed from
• 9:11
  the actual company He doesn't know the sister.
• 9:13
  He hasn't seen the financial reports. He just
• 9:16
  heard a rumor from a guy at the water cooler.
• 9:18
  Yes. But distance from the source does not cleanse
• 9:21
  the information. The colleague is trading on
• 9:26
  material, undisclosed information that originated
• 9:28
  from someone in a special relationship. The entire
• 9:32
  chain is contaminated. The whole chain. Yeah.
• 9:35
  The colleague is liable for trading. The brother
• 9:37
  is liable for tipping and trading. And the sister
• 9:39
  is liable for the original tip. Taking this back
• 9:42
  to you, the listener, sitting at that dinner
• 9:45
  party from our introduction, you hear a stranger
• 9:47
  mention an acquisition and you trade on it. What
• 9:50
  if you get caught and your defense is simply,
• 9:52
  listen, I didn't realize it was a corporate secret.
• 9:55
  We were just chatting over dessert. I didn't
• 9:57
  sign an NDA. Right. Why doesn't that defense
• 9:59
  hold water? It falls apart completely because
• 10:02
  of four little words in the law. Ought to have
• 10:06
  known the regulatory system. does not require
• 10:09
  you to have signed a formal non -disclosure agreement
• 10:12
  to be held liable. Ah, I see. The context of
• 10:15
  the conversation itself acts as a giant flashing
• 10:18
  warning sign. If a stranger at a dinner party
• 10:20
  tells you their company is about to be acquired,
• 10:23
  and you know for a fact this isn't on the evening
• 10:25
  news, any reasonable adult understands they are
• 10:28
  receiving privileged confidential information.
• 10:31
  It's just common sense. Exactly. Claiming ignorance
• 10:36
  when the context screams confidentiality is an
• 10:38
  incredibly weak defense and regulators see right
• 10:41
  through it. It makes you wonder though how the
• 10:43
  system functions at a macro level because it
• 10:45
  is physically impossible for regulators to bug
• 10:48
  every dinner party or monitor every quiet coffee
• 10:51
  shop conversation between siblings. You cannot
• 10:53
  police every whisper. It's an impossible task.
• 10:57
  Because of that reality, the financial system's
• 10:59
  primary defense mechanism isn't actually punishing
• 11:01
  people after the fact. The primary defense is
• 11:05
  forcing the information out into the open as
• 11:07
  fast as physically possible. How does that work?
• 11:10
  If everyone knows the secret, it loses its power.
• 11:13
  This is the entire foundation of the disclosure
• 11:15
  system. It's a philosophy of prevention over
• 11:18
  punishment, flooding the room with light so there
• 11:21
  are no shadows to hide in. That's a great way
• 11:23
  to visualize it, yeah. Public companies are bound
• 11:26
  by strict continuous disclosure rules. They must
• 11:29
  regularly report their financials, of course,
• 11:32
  but more importantly, they must promptly issue
• 11:35
  news releases and regulatory filings the absolute
• 11:38
  moment a material change occurs. Immediately.
• 11:40
  Yes. The goal is to shrink that window of time
• 11:44
  where insider trading is even possible down to
• 11:47
  zero. I hear the theory of that, but let's pause
• 11:50
  and think about the reality of doing business.
• 11:52
  Sure. If two massive companies are in the middle
• 11:55
  of a highly delicate live acquisition negotiation,
• 11:58
  they can't just send out a press release every
• 12:00
  time they agree on a new paragraph in the contract.
• 12:02
  No, of course not. It would invite a media circus,
• 12:04
  it would ruin the deal. So how does the system
• 12:08
  handle the need for actual necessary business
• 12:11
  discretion? Well, regulators do recognize the
• 12:14
  messy reality of the corporate world. There are
• 12:16
  very narrow, highly monitored provisions for
• 12:19
  confidential filing. If a company can prove that
• 12:21
  immediate public disclosure would be unduly detrimental
• 12:24
  to the company's interests, like destroying a
• 12:27
  fragile acquisition negotiation before the ink
• 12:30
  is dry, they can file the material change confidentially
• 12:33
  with the regulator. So the regulator knows, but
• 12:36
  the public doesn't. Exactly. But the moment that
• 12:40
  information leaks, or the moment the deal is
• 12:42
  finalized, that protective shield drops immediately,
• 12:46
  and the news must go public. And what about the
• 12:48
  old school ways of playing favorites? Because
• 12:51
  we all have this image from the 80s of a CEO
• 12:53
  calling up their biggest shareholder or their
• 12:56
  favorite Wall Street analyst and giving them
• 12:57
  a quiet heads up a few hours before the press
• 13:00
  release goes out. Ah, yes. That practice is known
• 13:03
  as selective disclosure, and it is strictly prohibited
• 13:06
  today. Is it really? Oh, completely. Companies
• 13:09
  cannot whisper material news to favored analysts
• 13:11
  or institutional investors before telling the
• 13:14
  general public. The playing field must be leveled
• 13:16
  simultaneously for everyone, whether you own
• 13:18
  10 shares or 10 million. There is another fascinating
• 13:22
  layer to this disclosure system, too, right?
• 13:25
  What about the people who aren't on the inside
• 13:28
  but are just quietly buying up massive amounts
• 13:31
  of a company stock in the open market? Right.
• 13:34
  They are creating their own material event just
• 13:36
  by buying. That brings us to the early warning
• 13:39
  reporting system. If anyone, an individual investor,
• 13:43
  a hedge fund, a rival company, acquires a significant
• 13:47
  stake in a public company, which is usually defined
• 13:49
  around the 10 % mark, they are legally required
• 13:52
  to publicly disclose that accumulation promptly.
• 13:55
  So you can't just sneak up in the dark and quietly
• 13:57
  buy half a company without anyone noticing? No,
• 14:00
  you can't. And the logic there is that the market
• 14:03
  have a fundamental right to know when someone
• 14:05
  is accumulating a massive, potentially controlling
• 14:08
  position. Because that affects everyone else.
• 14:10
  Because that accumulation is in itself material
• 14:13
  information to the rest of the shareholders.
• 14:15
  If a billionaire is suddenly buying up 10 % of
• 14:17
  the company you are invested in, you have a right
• 14:19
  to know that before you decide whether to sell
• 14:21
  your shares. OK, let's step back for a second
• 14:23
  because we've established that the rules are
• 14:26
  incredibly strict. You can't trade on secrets.
• 14:29
  You can't pass the virus by tipping. You can't
• 14:32
  selectively disclose. And you can't hide your
• 14:35
  massive purchases, right? Which brings up a massive
• 14:38
  glaring paradox. Oh, I know where you're going
• 14:41
  with this. How do actual CEOs, CFOs and corporate
• 14:44
  directors ever legally buy or sell stock in their
• 14:48
  own companies? By definition, they literally
• 14:51
  know. everything all the time. It is a wonderful
• 14:54
  paradox and it's one that confuses a lot of casual
• 14:56
  observers. Directors and officers absolutely
• 14:59
  can trade their own company's stock but their
• 15:02
  trading is heavily restricted and confined to
• 15:04
  very specific windows of time. So an executive
• 15:07
  can't just decide to sell a thousand shares on
• 15:08
  a random Tuesday because they want to buy a boat?
• 15:11
  Not if it's outside an approved window, no. Companies
• 15:14
  enforce strict internal policies called blackout
• 15:17
  periods. These typically surround the end of
• 15:19
  a financial quarter and lead all the way up to
• 15:21
  an earnings release. During a blackout period,
• 15:25
  insiders are completely frozen out of the market.
• 15:27
  They're only permitted to trade during open windows,
• 15:30
  which usually occur shortly after earnings have
• 15:32
  been published and fully digested by the public.
• 15:35
  That makes sense. Yeah. That is when the information
• 15:37
  asymmetry between the CEO and the retail investor
• 15:41
  is at its absolute lowest. And when they do finally
• 15:44
  trade in those open windows, it's not kept a
• 15:46
  secret. Not at all. They must publicly report
• 15:49
  every single trade on an insider reporting system
• 15:52
  within a very short time frame, usually a matter
• 15:54
  of days. In most jurisdictions, like the CD system
• 15:58
  in Canada or SEC filings in the US, this database
• 16:02
  is public, free, and searchable by anyone with
• 16:05
  an internet connection. You know, I always look
• 16:07
  at these free insider filings like reading the
• 16:10
  private diaries of the people who know the business
• 16:12
  best. It's an interesting way to look at it.
• 16:14
  If you want to know how confident a CEO really
• 16:17
  is about their new product launch, don't read
• 16:19
  the marketing brochure. Just look at what they
• 16:21
  are doing with their own wallet. It's an incredibly
• 16:24
  tempting analogy, the diary concept, but we have
• 16:27
  to be very careful with it. Treating insider
• 16:30
  filings as a pure reflection of a company's health
• 16:33
  can be a psychological trap. Really? Why is that?
• 16:36
  It is valuable information, yes, but you have
• 16:39
  to remember that human beings, even wealthy insiders,
• 16:44
  sell stock for a hundred innocent, mundane reasons.
• 16:47
  Let's linger on that for a second. What kind
• 16:49
  of reasons? Think about the reality of their
• 16:52
  lives. A corporate officer might be facing a
• 16:55
  massive tax bill. They might be buying a vacation
• 16:57
  home or sending three kids to an expensive university
• 16:59
  or going through a costly divorce. Just normal
• 17:02
  life expenses. Exactly. Or maybe their financial
• 17:06
  advisor simply told them they need to diversify
• 17:08
  their portfolio so their entire net worth isn't
• 17:11
  tied to the exact same place they get their paycheck.
• 17:13
  An insider selling shares is not automatically
• 17:16
  a red flag that the company is doomed. Selling
• 17:19
  is just life happening. But buying is different.
• 17:22
  Buying is entirely different. Insiders generally
• 17:24
  only buy shares on the open market with their
• 17:26
  own after -tax money for one singular reason.
• 17:29
  They believe the price is going to go up. Precisely.
• 17:32
  I love that distinction. Selling could mean absolutely
• 17:35
  anything, but buying means confidence. So moving
• 17:38
  from these perfectly legal, heavily documented
• 17:40
  trades back to the illegal ones, how do people
• 17:43
  actually get caught? When there are millions
• 17:47
  of transactions happening across global exchanges
• 17:49
  every single day, it feels like trying to find
• 17:52
  a needle in a digital haystack. It feels exactly
• 17:55
  that way to the amateur, which is precisely why
• 17:57
  they take the risk. They think they are a drop
• 17:59
  in the ocean. But the market surveillance systems
• 18:02
  operated by regulators and exchanges are remarkably
• 18:05
  sophisticated. They're not just looking by hand.
• 18:08
  No, they aren't sifting through millions of normal
• 18:10
  trades manually. They rely on algorithms that
• 18:14
  establish a baseline of normal behavior for every
• 18:16
  single stock. They are looking for anomalies.
• 18:19
  Like what? Specifically, they look for highly
• 18:21
  unusual trading volume. or sudden price movements,
• 18:25
  immediately preceding a major corporate announcement.
• 18:27
  So the announcement itself is what triggers the
• 18:29
  look back. The algorithms are working in reverse.
• 18:32
  That's the mechanism, yeah. Imagine a company
• 18:34
  announces on a Thursday that they are being acquired
• 18:36
  at a 50 % premium. The regulators' computers
• 18:40
  immediately rewind the tape. They look at the
• 18:42
  options market and the stock market for the weeks
• 18:44
  prior. OK. And here is where the trap snaps shut.
• 18:48
  The algorithm flags that someone who has never
• 18:51
  traded options in their entire life suddenly
• 18:54
  opened a new brokerage account and bought heavily
• 18:57
  into high -risk short -term contracts, betting
• 19:00
  on this specific company just three days before
• 19:03
  the takeover was announced. Wow. That isn't a
• 19:06
  needle in a haystack. That is a massive glowing
• 19:08
  red beacon. They aren't hiding at all. They think
• 19:11
  they are invisible in the crowd, but they are
• 19:13
  essentially standing alone on a stage with a
• 19:15
  spotlight on them. And once that spotlight is
• 19:17
  on, The investigation begins, as investigators
• 19:20
  often say. The anomalous trade is the flag and
• 19:23
  the social connection is the case. The social
• 19:25
  connection. Right. Once the system flags that
• 19:28
  highly improbable, mathematically absurd trade,
• 19:32
  human investigators simply work backward. They
• 19:35
  look at the identity of the trader and they start
• 19:37
  hunting for the connection to the company. And
• 19:40
  this is where the digital footprint destroys
• 19:42
  the amateur. Because regulators have subpoena
• 19:45
  power, they can demand the data. Exactly. They
• 19:48
  look at text messages, they check cell tower
• 19:50
  pings to see if the trader and the company's
• 19:52
  CFO were at the same coffee shop at the same
• 19:54
  time. Oh, that's intense. They scrape LinkedIn
• 19:56
  connections to see if they went to college together.
• 19:58
  They check country club rosters, Venbo transactions,
• 20:02
  family trees. Did you play golf with the lead
• 20:05
  attorney on the deal? Is your sister the finance
• 20:08
  employee? It is the false comfort of anonymity.
• 20:11
  People sitting in their living room tapping on
• 20:13
  a brightly colored trading app genuinely think
• 20:16
  they are untraceable. Yeah. But to a regulatory
• 20:19
  body, your trading records are completely transparent
• 20:21
  and your social connections are almost always
• 20:24
  traceable. Which brings us to the most practical
• 20:27
  takeaways for you listening right now to protect
• 20:30
  yourself in this complex landscape. First, if
• 20:33
  you work at a public company, take your blackout
• 20:36
  policies incredibly seriously. Right. And remember,
• 20:39
  and this catches so many people off guard, those
• 20:42
  blackout periods almost always apply to your
• 20:45
  spouse, your dependents, and anyone living in
• 20:48
  your household. You cannot use your partner's
• 20:50
  brokerage account as a clever workaround. That
• 20:53
  is such an easy, innocent mistake to make if
• 20:56
  you aren't paying close attention to the employee
• 20:58
  handbook. What else should we keep in mind? Answer
• 21:00
  your KYC, your client form, accurately regarding
• 21:04
  your insider status. The form you fill out when
• 21:06
  you open an account. Exactly. When you open any
• 21:09
  brokerage account, they ask if you are a director
• 21:11
  or officer of a public company or if you own
• 21:13
  more than 10 % of one. That question isn't just
• 21:16
  administrative trivia. It actually matters. Answering
• 21:19
  it accurately protects you because it allows
• 21:21
  your broker's compliance department to help monitor
• 21:24
  your trading and prevent you from accidentally
• 21:26
  violating reporting rules. And for me, my biggest
• 21:29
  takeaway is completely psychological. It's the
• 21:32
  realization that you cannot buy into the everyone
• 21:35
  does its myth. Oh, definitely. I think pop culture,
• 21:38
  movies, and television have convinced people
• 21:40
  that Wall Street is just one giant web of whispered
• 21:44
  secrets and that the only way to win is to cheat.
• 21:47
  But the reality is that most professionals in
• 21:50
  this industry are fiercely obsessively scrupulous
• 21:53
  about this precisely because their entire careers,
• 21:57
  their reputations, and their personal freedom
• 21:59
  are on the line. It is a pervasive myth. And
• 22:02
  it is usually the myth that amateurs use to justify
• 22:05
  their own bad behavior. And predictably, it is
• 22:08
  usually those same amateurs who end up getting
• 22:10
  caught in the surveillance deck. Okay, this has
• 22:12
  been an incredibly eye -opening journey. To slowly
• 22:15
  bring this deep dive to a close, let's recap
• 22:17
  what we've unpacked. We've learned that the offense
• 22:20
  of insider trading follows the information itself,
• 22:22
  acting almost like a virus, rather than depending
• 22:25
  on your job title. You don't need to be a CEO
• 22:27
  to be liable. Kipping is a severe, separate crime,
• 22:30
  even if you - you never trade a single share.
• 22:33
  The entire system of continuous disclosure exists
• 22:36
  to flood the market with light, forcing a level
• 22:39
  playing field so that the market can maintain
• 22:41
  trust and survive. Exactly. And finally, the
• 22:44
  algorithmic market surveillance systems make
• 22:46
  hiding in the data much, much harder than the
• 22:50
  average person realizes. It is a robust. heavily
• 22:53
  enforced system. But if we want to look at where
• 22:55
  this is all heading in the future, I want to
• 22:57
  leave you with a final thought to mull over one
• 22:59
  that really blurs the clear lines we've discussed
• 23:01
  today. Okay. I haven't dreamed. We spent this
• 23:03
  time talking about inside information being passed
• 23:06
  verbally at dinner parties or cafes. But what
• 23:10
  happens in an era of massive alternative data?
• 23:13
  What do you mean? Today there are elite hedge
• 23:15
  funds that spend tens of millions of dollars
• 23:17
  to buy real -time high -resolution satellite
• 23:20
  imagery from private aerospace companies. They
• 23:23
  use advanced algorithms to count the number of
• 23:25
  individual cars parked in the parking lots of
• 23:28
  major retail chains across the entire country
• 23:30
  every single day. And they use that massive data
• 23:34
  set to accurately predict the retailer's quarterly
• 23:36
  earnings weeks before the company officially
• 23:39
  releases them. That is staggering. They essentially
• 23:42
  know the earnings before the public does without
• 23:44
  ever speaking to an insider. They do. So it raises
• 23:47
  a profound question. Where exactly is the line
• 23:50
  between brilliant independent research and trading
• 23:53
  on undisclosed material information? I see. If
• 23:57
  you have the vast wealth required to buy private
• 23:59
  satellite data that the average retail investor
• 24:02
  could never dream of affording, is that information
• 24:05
  technically public? As technology outpaces our
• 24:09
  traditional 20th century definitions of fairness,
• 24:11
  who really has the unfair advantage? That completely
• 24:14
  changes the dinner party metaphor, doesn't it?
• 24:16
  It leaves us with a lot to think about regarding
• 24:18
  the future of fairness. Thank you so much for
• 24:21
  joining us on this deep dive. We hope you found
• 24:22
  this exploration as fascinating as we have and
• 24:25
  we warmly invite you back for the next one. Take
• 24:26
  care.